Disrupting the Disruptors

Jill Lepore’s attack on “disruption” and on Clayton Christensen’s “innovator’s dilemma” model of industry dynamics in the New Yorker kicked up quite a stir. Called “The Disruption Machine: What the gospel of innovation gets wrong,” Lehore lays out a multifaceted skeptical case against the notion of disruption. Her piece combines several different arguments together without clearly distinguishing them, but I identify four basic questions she attempts to answer:

1. Does disruptive innovation exist, at least as a model for understanding industries?
2. Can incumbents successfully respond to a disruptive innovation?
3. Can disruptive innovations be identified prospectively or only retrospectively?
4. Are disruptive innovations net beneficial to society?

I’ll start by observing that she twice references traditional print journalism incumbents as examples. One is the New York Times innovation strategy, which makes explicit reference to Christensen’s theory. The second is when she talks about the public interest rationale for the separation of business and editorial in the traditional news business, making reference to both the NYT and the New Yorker.

This explicit link to journalism, along with the general tone of offense that pervade the article, betrays something more than a professional interest in the topic. Indeed, she’s hardly a neutral observer as her paycheck in part comes from an industry that’s being disrupted (she’s also a Harvard professor). The impression I get once again is of someone in deep love with the culture and traditions of her trade, something I’ve noticed over and over again in the incredible resistance and even hostility newsrooms have shown over the last decade or so to change and innovation. There’s a reason that people who experience an involuntary rupture can often never get over it. There’s a reason, after all, the Israelites who saw the miracles in Egypt never got to enter the Promised Land.

This points to a legitimate add on to Christensen’s theory. He views the innovator’s dilemma as purely about logical business decisions. But he overlooks the cultural aspects. The culture of firms emerging from traditional business practices are resistant to change because legacy practices are part of the core value set, maybe only implicitly. I lived it. I started out after school doing IT consulting where we operated in an onsite, onshore model in a traditional “mountain moving” operating style. The switch to global delivery in response to upstarts from places like India disrupted that way of doing business. And while I enjoy aspects of global and remote site delivery and successful ran projects using the model, I never had the love for it that I did for the first one. I still have a nostalgia for the “good old days.” So I can relate myself.

In this sense I think we should see the piece as written by someone who is party to the phenomenon in question, and perhaps as an expression of some of her own personal angst on the topic.

With that let me attempt to address her questions.

1. Does disruptive innovation exist, at least as a model for understanding industries? Lepore says No, and that Christensen’s model is based on flawed case studies. I personally have some sympathy for this argument. She correctly notes that “disruptive innovation” is a sort of modern gloss on Schumpeter’s “creative destruction.” Certainly in the real world theoretical abstractions like this are seldom seen in a clean or pure form.

But there’s a long way between critiquing Christensen’s theory as a model of understanding firms and industries, and critiquing the idea of a disruptive innovation itself. All of us can take a look around and see the digital technology has radically disrupted the newspapers, the music industry, fixed line telephony, etc. It’s obvious. Disruptive innovation is trivial to see all around us.

2. Can incumbents successfully respond to disruptive innovations? Lepore says Yes and I agree. Clearly disruptive innovation is not a death sentence for a company. But what we see is that disruption often triggers an industry shakeout, and while often the top players survive and come through stronger, weaker players fail or consolidated away.

Consider the mainframe industry back in the day, with “IBM and the Seven Dwarves.” Minicomputers and PCs disrupted that old business. IBM is still alive and kicking – and even still making money off mainframes. Basically everybody else is out of the business or selling IBM clone stuff. Sperry and Burroughs, for example, merged to form Unisys. Unisys is still around as a company, but they are no longer a mainframe firm. They are now basically an IT services company. That’s a success story as far as it goes. Many of the other players are dead or completely flushed out of the industry.

We’re seeing the same thing in newspapers. The Wall Street Journal seems to be adapting. The New York Times is holding its own as well. It may well be that ten years from now the NYT and Journal are stronger than ever. We already see that the NYT is a national paper in the way that it never used to be, for example. But your local newspaper, now likely owned by a chain like Gannett, is already a zombie that’s probably not even worth reading today.

So just because some firms survive and even become more dominant, doesn’t mean a disruptive innovation doesn’t have profound industry effects.

3. Can disruptive innovations be identified prospectively or only retrospectively? Lepore cities Christensen’s investment fund failure here, and I’d have to agree that predicting the future is hard. Even the best venture capitalists are looking for the minority of grand slam investments and know most of their bets won’t really pan out. Just having a theory doesn’t necessarily mean you can profit from it as we know.

4. Are disruptive innovations net beneficial to society? Here’s where Lepore makes her most explicit defense of the present model of journalism, saying:

It’s readily apparent that, in a democracy, the important business interests of institutions like the press might at times conflict with what became known as the “public interest.” That’s why, a very long time ago, newspapers like the Times and magazines like this one established a wall of separation between the editorial side of affairs and the business side. (The metaphor is to the Jeffersonian wall between church and state.) “The wall dividing the newsroom and business side has served The Times well for decades,” according to the Times’ Innovation Report, “allowing one side to focus on readers and the other to focus on advertisers,” as if this had been, all along, simply a matter of office efficiency. But the notion of a wall should be abandoned, according to the report, because it has “hidden costs” that thwart innovation. Earlier this year, the Times tried to recruit, as its new head of audience development, Michael Wertheim, the former head of promotion at the disruptive media outfit Upworthy. Wertheim turned the Times job down, citing its wall as too big an obstacle to disruptive innovation.

Here I think Lepore mixed disruptive innovation as a theory of industrial change and disruptive innovation as a theory of value. The championing of “disruption” by the tech crowd obviously grates, as well it should. She sees that the thesis of investment for many tech firms is about mutilating existing industries and capturing all the value, heedless of what non-monetary values (or human costs) might result.

I think there’s something to this. I tend to take a Burkean view of institutions in which we have values that are invisibly embedded in them that are in a sense critical to the healthy functioning of our society, and we tamper with them at our peril. When we impose radical change rather than relying on organic evolution, the law of unintended consequences is sure to kick in at some point. Today’s Randian entrepreneurs are hardly the only ones who want radical change, however. Radical social reformers of various stripes have tried to radically remake societies (say Karl Marx or the French Revolutionaries) with similar disregard or even contempt for what would be lost.

Lepore actually makes this point implicitly when she links contemporary business school thinking to the decline of faith, saying, “Faith in disruption is the best illustration, and the worst case, of a larger historical transformation having to do with secularization, and what happens when the invisible hand replaces the hand of God as explanation and justification.”

She in a sense argues that we shouldn’t just equate change with progress. In that regard, I think of disruptive innovation as similar to the “paradigm shift” model from Thomas Kuhn’s The Structure of Scientific Revolutions. A paradigm shift is a move from something like Newtonian to Einsteinian physics. As a practitioner of the history and philosophy of science, Kuhn critiqued the notion that these paradigms shifts represented progress towards knowledge of the ultimate truths. In fact, a paradigm shift could easily result in a decline of explanatory power in some cases, a phenomenon known as “Kuhnian loss.” For Kuhn, scientific change wasn’t necessarily progress towards truth as such.

I think it is similar to evolution, an analog Lepore rejects because she believes disruptive innovation theory engages in circular logic. But evolution proceeds on a similar logic. I think her real critique is that she sees evolution as producing genuine progress while disruptive innovation is fake progress. But evolution, like disruptive innovation or paradigms, has no inherent concept of progress. Mankind is not a the apex of evolution compared to an amoeba simply because we came along later and are more complex. There’s no guarantee we will we not find homo sapiens “disrupted” at some point in favor of the proverbial cockroach or something.

So I agree there can be genuine loss, and self-interested tech advocates aside, I don’t even see disruptive innovation as promising progress on every dimension. It’s a theory of business.

The problem is that not only is there a sort of Kuhnian loss from innovation, as with paradigm shifts you can’t escape it by refusing to participate. A scientists who sticks with the old paradigm when the new is accepted ends up no longer in a sense a scientist, as normal science takes place within a paradigm, or shared set of assumptions and models about how the world works.

Similarly, I may like physical newspapers, but that doesn’t mean I’ll be able to keep reading one forever. The disruption that’s hitting that industry will likely make it impossible some day. The joy I get from print will be lost, even though I may get many benefits from digital, not least of which the potential to have a platform like this one. My firm couldn’t just keep doing IT systems they development the way it used to; it would have gone out of business. We are deprived of the choice to stay the same.

Prior to the 1970s, we used regulation to try to manage the process of destruction by innovation by in a sense outlawing it. Telephony has probably changed more from a consumer perspective since the 1984 AT&T breakup than it did in the entire period previous to that back to Alexander Graham Bell, for example. Are we better off or worse off? As a society, we’ve clearly embedded a deregulating principle into our approach. This prioritizes dynamism and change, and treats the losses as acceptable. One can debate whether this is the right principle or not. But let us not pretend that we don’t have trade-offs to make.

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Disregarding the journalism angle, I think the main point of the article pertains to question #2; question #4 is tangential. Lepore’s argument is that the main beneficiaries from innovation are the established players. She frames it in a moralistic way, and has that gotcha about 17th-century Harvard (who cares? Harvard wasn’t even an important institution then), but the argument is largely technical. Per Lepore’s argument, if universities give way to MOOCs then the main institutions offering them will be existing ones, such as early-adopter MIT, rather than brand new firms.

Also, ad #1, when you say “disruption is all around us,” is that really true? Disruption is not just any innovation. At least the way I understand the term, it refers to a lower-quality, lower-cost good that both expands the industry and takes over its lower end, and slowly gets good enough to take on the established players. The standard example is the entry of PCs into what used to be a mainframe-only market. But the other major consumer electronics inventions are not like that. Cellphones were never lower-quality versions of landlines: they competed on portability rather than cost. Smartphones were not lower-quality, lower-cost versions of anything, and entered the cellphone market from the top end, at a time when first-world cellphone penetration was already close to 100%.

The story you’re telling about how “the top players survive and come through stronger, weaker players fail or consolidate away” is true, but I don’t think it’s really about disruption. At least, we see this in industries in which there is clearly no disruption. The story you tell about IBM and the seven dwarves could also be told about video games: of the major studios in the 1990s, the strongest (Electronic Arts and Nintendo) are alive and kicking, but Eidos was bought out by Square Enix (itself a merger of Square and Enix), GT was bought out by Infogrames while Infogrames later collapsed, Sierra got bought out multiple times and eventually disappeared, 3DO disappeared, Westwood got bought out by EA, and Activision merged with Blizzard to form a major studio. None of this is due to disruption. The main upstarts in the industry, like Valve, got in by making good games, rather than cheap games; the mergers and collapses I am talking about predate the rise of smartphone apps and Facebook games, which are frankly not a threat to the EAs and Blizzards.

I think this is where the polemical bits of Lepore’s article come in. Lepore sees a world in which invention comes in many forms, of which disruption is far from the most important. Silicon Valley tech boosters specifically trumpet disruption, and often do so in a politicized setting, with their love for MOOCs, clickbait journalism, dubious forms of public transit, and sundry harebrained ideas like Solar Roadways. Hence, the “is not!” reaction.

For us lay folk who are not steeped in the lingo of the business world, it’s hard to know the value of a new terminology that seems to add nothing but, well, new terminology. For the life of me I can’t see why “disruption” is such a useful term at all, just because it’s more Latinate than than “break” or “shift.” And just because you have collocated the term “disruptive” with “innovation” doesn’t mean you have given birth to something that is conceptually very far from where you started, which is simple capitalistic competition. I fail to see how Christensen has put any truly useful new lens on ancient, venerable problems of competition in the market.

I was surprised to see Lenore’s article as the focus for a post on this website. I read the article last night, but what struck me (and so much so that I bothered to copy it into a Word document – was the following statements:

“Every age has a theory of rising and falling, of growth and decay, of bloom and wilt; a theory of nature. Every age also has a theory about the past and the present, of what was and what is, a notion of time; a theory of history…… If the present differed from the past, it was usually worse; supernatural theories of history tend to involve decline, a fall from grace, the loss of God’s favor, corruption.”

The reason this struck me is that it reminded me that one of the unrecognized challenges of rust belt cities is that they seem to fill some sort of societal need to fit globalization and the transformation of the American economy into a narrative of growth (Seattle, Austin, etc.) and decay (insert standard list of Midwest rust belt cities), success and failure, decline, fall from grace, etc. It’s not enough for the facts for certain cities to contradict this narrative. Someone has to fill the failure category, and residents (and journalists it seems) have no problem letting the Midwest continue to fill that necessary role. If a city happens to challenge this narrative (such as Madison — which in every possible way is a city that is an expression of its unique Midwestern ethos, heritage, landscape, etc.) — no problem, just classify it as an exception attributable to its role as a state capitol, location for a major university, etc. No need to note it’s extraordinary geographic setting, its history that is sprinkled with figures such as Frank Lloyd Wright, John Muir, Aldo Leopold, etc.

Pertinent to the main topic of the article, the belief in disruptive technology itself it another facet of the national battle of narratives. The disruptive technology narrative is one that fits in with the superiority of new economy cities versus the rust belt. Never mind the fact that in southeast Wisconsin alone, there are a dozen 110 to 170 year ago manufacturing companies that are still thriving (e.g., A.O. Smith (founded 1874); Bemis Co. Inc. (founded 1858); Harley Davidson (1903); Johnson Controls (1885), Joy Global, Inc. (1884); Kohler Co. (1873), Menasha Corp. (1849), Rexnord Corp. (1891), Rockwell Automation (1903), S.C. Johnson & Son, Inc. (1886), Case IH (1844), and Gardner Denver (1859)). This doesn’t fit in with the national economic narrative which at the moment in which the successful business models are supposed to be dominated high tech firms and new economy cities.

I am with Alon on this especially the question about is disruption really all around us? Two of the examples used are newspapers and music is it really disruptive when its stupid overreactions and your own product that you are in competition against? The newspaper industry for example is mostly in competition against their free online version not against the Huffington Post or The Druge Report. The music labels are competing against free version of their albums and songs on piratebay not a legion of independent artists doing their own marketing.

Looking at the list of “disruptive” technology on the Wikipedia page does not make a compelling case for the idea especially that laid out by the proponents.

Take digital photography which I am sure will be the big example used because Kodak. They screwed up but look at the traditional film camera makers like Canon, Nikon, etc etc they are still the big names in digital cameras. Red is still a niche camera in film production.

To Marcus Smith. David kind of nails it. Its a narrative to use to make those that claim it appear to not just be another new business but an important part of history. It gives them an excuse to have bad business plans or plans that either step or cross over regulatory or other legal lines (Uber, Airbnb). Uber especially has been using disruption as the hammer as why they should not follow the law or that the law should change to benefit them.

Companies tagged with the disruption label seem to have a special premium in the market even with some of their recent drops in stock price. Tesla, Amazon and Netflix are examples here. Compare that to a company like MS that is no longer considered disruptive yet piles on the profits every quarter and seems to add a new billion dollar revenue product every 18 months or so. This is beyond just the normal growth versus value stock pricing too.

Continuing my comments from last night, I think this battle of narratives, and the need to fit different cities into this winners/loser, growth/decline, rise and fall narrative was at the root of some of the heated discussions last week regarding Columbus vs Cincinnati and Cleveland. Columbus does everything is can to stay out of the rust belt narrative – and perhaps rightly so – as there seems to be no way at the moment to win if you are a city that fits into that category. Cincinnati on the other hand is frustrated to be continually lumped into the loser side of the rust belt narrative (which is part of larger national globalization, new economy economic narrative) when the facts on the ground suggest that it has incredible assets, an economy that is dynamic and global in many respects. The national response to Cincinnati is: “Sorry – your successes are all tied to old economy companies or institutions. That doesn’t count in the new economy, even if we can’t precisely explain why at the moment. Plus you still have a population that is below it’s peak (never mind that the same scale of population decline occurred in the older parts of Dallas or Atlanta); or you have concentrated urban poverty statistics, etc. No one can win the arguments, because there is an 800 lb invisble gorilla in the room which is all of the flawed assumptions underlying the current dominant national economic narratives.

There was a book called “Metahistory” in which the author said that historians shape their stories to reflect their own philosphical take on life along Shakespearean lines, as tragedies, comedies, etc., that we are subject to tragic flaws, that the good will out, etc. This is a reaction to the basic question, “why is this happening to me.” People are trying to figure out why the world around them is not the comforting one they used to know. To those whose lives are not as good, this is “disruption”, to those who benefit, the change is good and new, a force of morality. We hide our judgements in analysis. Maybe the best thing is for writers to first describe events and say whether they think these are good or bad. Then we could go into an article knowing the bias.

The statement “Unisys is still around as a company, but they are no longer a mainframe firm. They are now basically an IT services company” is only partially accurate. It’s true that Unisys now derives the vast majority of revenue from services. However, our ClearPath mainframe technology remains an important and vibrant part of our business. Just last week we enhanced the line with 12 new models using an advanced fabric architecture based on Intel processor technology and Unisys’ own secure partitioning software. We continue to enhance the ClearPath line to give clients an increasingly modern environment for the “bet your business” applications they’ve traditionally run on those systems.

About Aaron M. Renn

Aaron M. Renn is a Senior Fellow at the Manhattan Institute and an opinion-leading urban analyst, writer, and speaker on a mission to help America’s cities thrive and find sustainable success in the 21st century. (Photo Credit: Daniel Axler)